As the year comes to a close, investors may be feeling a bit shell shocked. It's been a year of massive losses. The Dow Jones Industrial Average has fallen 36 percent, that's the biggest drop since the Great Depression, and the S&P 500 had its biggest slide since it was created half a century ago. We can't, of course, undo the financial trauma of 2008, but we can look for a few remedies, in the form of tax breaks. To hear them, we reach Bill Baldwin, he's the editor of Forbes magazine. Good morning.

Mr. BILL BALDWIN (Editor, Forbes): Good morning, Renee. I have a fun holiday activity to cap off a year of woe on Wall Street, and that is to take tax losses. Make the IRS share your pain and there's a way to do that. My favorite vehicle for doing it is called a mutual fund swap.

MONTAGNE: It doesn't sound that complicated, except it does. What is a mutual fund swap?

Mr. BALDWIN: If you're in a no-load mutual fund family, you can usually swap from one fund to another without paying any sales commission. And my scheme is as follows - you sell something at a loss and you quickly buy back something similar.

MONTAGNE: Give us an example of what's similar, but not too similar.

Mr. BALDWIN: Maybe you now own an Index 500 fund, it owns the 500 stocks in the S&P Index. You sell that and you buy back a specialized index fund that just buys large companies. Similar, but not identical, to the thing you just sold.

MONTAGNE: Does it matter how much money is involved here? Are there things you can do if you have a small amount of money or if you have a great deal of money that's tied up and possibly lost in stocks?

Mr. BALDWIN: Well, how much of your pain will the IRS be willing to share? Here's how the rule works. If you have a tax loss, a capital loss, on your investments, you can use that to absorb any amount, any amount of capital gains, ha ha, or up to $3,000 of ordinary income, which might be your salary, or interest on your bank CDs.

So let's think about this. Suppose you do have a $4,000 loss, and you don't have any gains this year - hey, who does, right? This is what you would do. You would be able to claim 3,000 of that $4,000 loss against your ordinary income, like your paycheck. The remaining $1,000 gets carried forward to the next year. So you can ultimately deduct a lot of money, $3,000 at a time.

But there's something else that's useful about that $1,000 loss that you're carrying forward, what if you get lucky next year, something goes up and you have a $1,000 gain? Your remaining loss can be used to absorb that gain. So you get a free ride next year. So don't worry if the amount of your loss is a whole lot more than 3,000. You can ultimately claim all of it, if you live long enough.

MONTAGNE: Well, perhaps we should say then as 2008 gets to an end, you know, here's to your health.

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